FT reports that Fed is likely to endorse a further interest rate cut (link):

"The Federal Reserve will probably end up cutting interest rates by as much as 50 basis points by the end of its policy meeting on Wednesday, but it will do so without any great conviction.Senior policymakers do not think that reducing the federal funds rate from its already low level of 1.5 per cent will have a big effect on financial markets or the US economy..."

Iceland's central bank lifted the key interest rate to 18 percent from 12 percent after Icelandic krona lost 70 percent during this crisis (link). Secondly, Iceland's GDP is expected to contract by up to 10 percent, unemployment is expected to reach 8 percent or higher while inflation rate could hit as much as 20 percent. In fact, IMF recently predicted the rise in the inflation rate to 11,2 percent. Here (link) is a brief outline of Iceland's state of the economy, analyzing the macroeconomic background of country's current crisis as well as rapid expansion in the latter decade.

Monday, October 20, 2008

The Economist has published an interesting insight into Iceland's recent economic crisis (link):

"Iceland has been growing smartly in recent years. The country has low unemployment and income per person is somewhat above the average in the European Union. Huge investments in green energy and aluminium smelting have drawn inflows of foreign investment and promise to underpin exports for years to come. But on these sound foundations, Iceland has also built a financial house of cards. The country’s three largest banks have expanded headlong abroad since two of them were privatised in 2003, amassing assets of about €125 billion ($180 billion) by the end of 2007, compared with an economy of just €14.5 billion. Many of these assets were funded by lenders in fickle wholesale markets. In early 2006 less than 30 cents in every loan issued was backed by deposits. Iceland’s households also racked up debts amounting to 213% of disposable income. Britons and Americans owed just 169% and 140% of disposable income respectively—figures that make them seem almost sober by comparison."

Icelandic government announced $6 bn rescue package to stabilize the economy (link) after an increase in government debt which is expected to reach as much as 100 percent of the GDP. Here is some interesting insights into financial crisis in Iceland (link). Meanwhile, Fitch downgraded Iceland's long-term foreign currency rating to BBB- and long term IDR (issuer default rating) to A- (link). Here is also a brief factsheet of Iceland's economic indicators in this year's September (link). IMF's official inflation and output estimate for Iceland suggest output decline and inflation surge in 2009 (link).

Here (link) is an interview with Anna J. Schwartz, the co-author of Monetary History of the United States 1867-1960 (link), highlighting the latest issues associated with Fed's policy measures, credit market shocks and economic fluctuations.

Wednesday, October 15, 2008

"IT WAS widely expected that Paul Krugman, who won the the 2008 Nobel prize for economics on Monday October 13th, would claim the award one day. In 1991 he had received the John Bates Clark medal for the best young economist, which is widely seen as a stepping stone to a Nobel award. What is more of a surprise is that he was honoured rather sooner in his life than many other winners. Like most Nobel laureates in economics, Mr Krugman was recognised for research undertaken early in his career—in this case for his pioneering work on modelling trade between countries whose firms grow more profitable the bigger they become. At 55, he is only four years older than the youngest ever winner, Kenneth Arrow, who was 51 when he won in 1972. But he is a fresh-faced youngster in comparison with Leonid Hurwicz, one of last year’s winners, who was 90 when he shared the prize."